XNYS:OI Owens-Illinois Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.   20549

 

FORM 10-Q

 

(Mark one)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

June 30, 2012

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from      to      

 

Commission file number 1-9576

 

 

OWENS-ILLINOIS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

22-2781933

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

One Michael Owens Way, Perrysburg, Ohio

 

43551

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (567) 336-5000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

The number of shares of common stock, par value $.01, of Owens-Illinois, Inc. outstanding as of June 30, 2012 was 165,069,439.

 

 

 



 

Part I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

The Condensed Consolidated Financial Statements of Owens-Illinois, Inc. (the “Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

1



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

1,766

 

$

1,959

 

$

3,505

 

$

3,678

 

Manufacturing, shipping and delivery expense

 

(1,390

)

(1,604

)

(2,751

)

(2,980

)

Gross profit

 

376

 

355

 

754

 

698

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expense

 

(139

)

(146

)

(279

)

(288

)

Research, development and engineering expense

 

(17

)

(18

)

(32

)

(34

)

Interest expense

 

(62

)

(100

)

(126

)

(176

)

Interest income

 

2

 

3

 

5

 

6

 

Equity earnings

 

18

 

19

 

31

 

33

 

Royalties and net technical assistance

 

5

 

3

 

9

 

8

 

Other income

 

4

 

2

 

6

 

4

 

Other expense

 

(8

)

(8

)

(19

)

(26

)

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

179

 

110

 

349

 

225

 

Provision for income taxes

 

(41

)

(32

)

(85

)

(60

)

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

138

 

78

 

264

 

165

 

Earnings (loss) from discontinued operations

 

(1

)

2

 

(2

)

1

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

137

 

80

 

262

 

166

 

Net earnings attributable to noncontrolling interests

 

(4

)

(7

)

(8

)

(11

)

Net earnings attributable to the Company

 

$

133

 

$

73

 

$

254

 

$

155

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

134

 

$

71

 

$

256

 

$

154

 

Earnings (loss) from discontinued operations

 

(1

)

2

 

(2

)

1

 

Net earnings

 

$

133

 

$

73

 

$

254

 

$

155

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.82

 

$

0.43

 

$

1.56

 

$

0.93

 

Earnings (loss) from discontinued operations

 

(0.01

)

0.01

 

(0.02

)

0.01

 

Net earnings

 

$

0.81

 

$

0.44

 

$

1.54

 

$

0.94

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands)

 

164,799

 

163,633

 

164,520

 

163,494

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.81

 

$

0.42

 

$

1.54

 

$

0.92

 

Earnings (loss) from discontinued operations

 

(0.01

)

0.01

 

(0.02

)

0.01

 

Net earnings

 

$

0.80

 

$

0.43

 

$

1.52

 

$

0.93

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding (thousands)

 

165,930

 

166,271

 

166,062

 

166,193

 

 

 See accompanying notes.

 

2



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME

(Dollars in millions)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net earnings

 

$

137

 

$

80

 

$

262

 

$

166

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(207

)

122

 

(108

)

196

 

Pension and other postretirement benefit adjustments

 

33

 

26

 

57

 

46

 

Change in fair value of derivative instruments

 

3

 

 

 

3

 

1

 

Other comprehensive income (loss)

 

(171

)

148

 

(48

)

243

 

Total comprehensive income (loss)

 

(34

)

228

 

214

 

409

 

Comprehensive income attributable to noncontrolling interests

 

(1

)

(12

)

(12

)

(20

)

Comprehensive income (loss) attributable to the Company

 

$

(35

)

$

216

 

$

202

 

$

389

 

 

See accompanying notes.

 

3



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Dollars in millions, except per share amounts)

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

336

 

$

400

 

$

260

 

Receivables, less allowances for losses and discounts ($40 at June 30, 2012, $38 at December 31, 2011, and $41 at June 30, 2011)

 

1,173

 

1,158

 

1,322

 

Inventories

 

1,223

 

1,061

 

1,114

 

Prepaid expenses

 

115

 

124

 

104

 

 

 

 

 

 

 

 

 

Total current assets

 

2,847

 

2,743

 

2,800

 

 

 

 

 

 

 

 

 

Investments and other assets:

 

 

 

 

 

 

 

Equity investments

 

292

 

315

 

330

 

Repair parts inventories

 

149

 

155

 

156

 

Pension assets

 

115

 

116

 

63

 

Other assets

 

687

 

687

 

711

 

Goodwill

 

2,023

 

2,082

 

2,957

 

 

 

 

 

 

 

 

 

Total other assets

 

3,266

 

3,355

 

4,217

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost

 

6,777

 

6,899

 

7,416

 

Less accumulated depreciation

 

4,056

 

4,022

 

4,240

 

 

 

 

 

 

 

 

 

Net property, plant and equipment

 

2,721

 

2,877

 

3,176

 

 

 

 

 

 

 

 

 

Total assets

 

$

8,834

 

$

8,975

 

$

10,193

 

 

4



 

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

Liabilities and Share Owners’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Short-term loans and long-term debt due within one year

 

$

452

 

$

406

 

$

371

 

Current portion of asbestos-related liabilities

 

165

 

165

 

170

 

Accounts payable

 

909

 

1,038

 

985

 

Other liabilities

 

588

 

636

 

666

 

 

 

 

 

 

 

 

 

Total current liabilities

 

2,114

 

2,245

 

2,192

 

 

 

 

 

 

 

 

 

Long-term debt

 

3,567

 

3,627

 

3,969

 

Deferred taxes

 

204

 

212

 

234

 

Pension benefits

 

817

 

871

 

564

 

Nonpension postretirement benefits

 

266

 

269

 

259

 

Other liabilities

 

374

 

404

 

398

 

Asbestos-related liabilities

 

248

 

306

 

238

 

Commitments and contingencies

 

 

 

 

 

 

 

Share owners’ equity:

 

 

 

 

 

 

 

Share owners’ equity of the Company:

 

 

 

 

 

 

 

Common stock, par value $.01 per share, 250,000,000 shares authorized, 181,726,093, 181,174,050, and 181,192,253 shares issued (including treasury shares), respectively

 

2

 

2

 

2

 

Capital in excess of par value

 

3,000

 

2,991

 

2,986

 

Treasury stock, at cost, 16,656,654, 16,799,903 and 16,991,597 shares, respectively

 

(402

)

(405

)

(410

)

Retained earnings (loss)

 

(125

)

(379

)

276

 

Accumulated other comprehensive loss

 

(1,373

)

(1,321

)

(672

)

Total share owners’ equity of the Company

 

1,102

 

888

 

2,182

 

Noncontrolling interests

 

142

 

153

 

157

 

Total share owners’ equity

 

1,244

 

1,041

 

2,339

 

Total liabilities and share owners’ equity

 

$

8,834

 

$

8,975

 

$

10,193

 

 

See accompanying notes.

 

5



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

262

 

$

166

 

(Earnings) loss from discontinued operations

 

2

 

(1

)

Non-cash charges (credits):

 

 

 

 

 

Depreciation

 

191

 

208

 

Amortization of intangibles and other deferred items

 

16

 

9

 

Amortization of finance fees and debt discount

 

16

 

16

 

Pension expense

 

44

 

44

 

Restructuring

 

 

 

12

 

Other

 

31

 

17

 

Pension contributions

 

(39

)

(27

)

Asbestos-related payments

 

(58

)

(68

)

Cash paid for restructuring activities

 

(40

)

(13

)

Change in non-current assets and liabilities

 

(39

)

(52

)

Change in components of working capital

 

(380

)

(219

)

Cash provided by continuing operating activities

 

6

 

92

 

Cash provided by (utilized in) discontinued operating activities

 

(2

)

2

 

Total cash provided by operating activities

 

4

 

94

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant and equipment

 

(124

)

(153

)

Acquisitions, net of cash acquired

 

(5

)

(147

)

Net cash proceeds related to sale of assets and other

 

20

 

 

 

Proceeds from collection of minority partner loan

 

9

 

 

 

Cash utilized in investing activities

 

(100

)

(300

)

Cash flows from financing activities:

 

 

 

 

 

Additions to long-term debt

 

119

 

1,451

 

Repayments of long-term debt

 

(128

)

(1,644

)

Increase in short-term loans

 

31

 

61

 

Net receipts (payments) for hedging activity

 

27

 

(9

)

Payment of finance fees

 

 

 

(18

)

Dividends paid to noncontrolling interests

 

(23

)

(31

)

Issuance of common stock and other

 

1

 

2

 

Cash provided by (utilized in) financing activities

 

27

 

(188

)

Effect of exchange rate fluctuations on cash

 

5

 

14

 

Decrease in cash

 

(64

)

(380

)

Cash at beginning of period

 

400

 

640

 

Cash at end of period

 

$

336

 

$

260

 

 

See accompanying notes.

 

6



 

OWENS-ILLINOIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions, except per share amounts

 

1.              Change in Accounting Method

 

Effective January 1, 2012, the Company elected to change the method of valuing U.S. inventories to the average cost method, while in prior years these inventories were valued using the last-in, first-out (“LIFO”) method.  The Company believes the average cost method is preferable as it conforms the inventory costing methods globally, improves comparability with industry peers and better reflects the current value of inventory on the consolidated balance sheets. All prior periods presented have been adjusted to apply the new method retrospectively.

 

There was no effect of the change on the condensed consolidated results of operations for the three months ended June 30, 2011. The effect of the change for the six months ended June 30, 2011 is as follows:

 

 

 

As originally

 

 

 

 

 

 

 

reported under

 

Effect of

 

As

 

 

 

LIFO

 

Change

 

Adjusted

 

Manufacturing, shipping and delivery expense

 

$

(2,990

)

$

10

 

$

(2,980

)

 

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

 

 

Net earnings from continuing operations

 

144

 

10

 

154

 

Basic earnings per share from continuing operations

 

0.87

 

0.06

 

0.93

 

Diluted earnings per share from continuing operations

 

0.86

 

0.06

 

0.92

 

 

The effect of the change on the condensed consolidated balance sheets as of December 31, 2011 and June 30, 2011 is as follows:

 

 

 

As originally

 

 

 

 

 

 

 

reported under

 

Effect of

 

As

 

December 31, 2011

 

LIFO

 

Change

 

Adjusted

 

Assets:

 

 

 

 

 

 

 

Inventories

 

$

1,012

 

$

49

 

$

1,061

 

 

 

 

 

 

 

 

 

Share owners’ equity:

 

 

 

 

 

 

 

Retained earnings (loss)

 

(428

)

49

 

(379

)

 

June 30, 2011

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Inventories

 

$

1,065

 

$

49

 

$

1,114

 

Share owners’ equity:

 

 

 

 

 

 

 

Retained earnings

 

227

 

49

 

276

 

 

7



 

The effect of the change on the consolidated share owners’ equity as of January 1, 2011 is as follows:

 

 

 

As originally

 

 

 

 

 

 

 

reported under

 

Effect of

 

As

 

 

 

LIFO

 

Change

 

Adjusted

 

 

 

 

 

 

 

 

 

Retained earnings

 

$

82

 

$

39

 

$

121

 

 

The effect of the change on the condensed consolidated cash flows for the six months ended June 30, 2011 is as follows:

 

 

 

As originally

 

 

 

 

 

 

 

reported under

 

Effect of

 

As

 

 

 

LIFO

 

Change

 

Adjusted

 

 

 

 

 

 

 

 

 

Net earnings

 

$

156

 

$

10

 

$

166

 

Change in components of working capital

 

(209

)

(10

)

(219

)

 

Had the Company not made this change in accounting method, manufacturing, shipping and delivery expense for the three and six months ended June 30, 2012 would have been higher by $7 million and $1 million, respectively, and net earnings attributable to the Company would have been lower by $7 million and $1 million, respectively, than reported in the condensed consolidated results of operations. In addition, both basic and diluted earnings per share would have been lower by $0.04 and $0.01 for the three and six months ended June 30, 2012, respectively.

 

8



 

2.              Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

Three months ended June 30,

 

 

 

2012

 

2011

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

133

 

$

73

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

164,799

 

163,633

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other

 

1,131

 

2,638

 

 

 

 

 

 

 

Denominator for diluted earnings per share - adjusted weighted average shares outstanding

 

165,930

 

166,271

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.82

 

$

0.43

 

Earnings (loss) from discontinued operations

 

(0.01

)

0.01

 

Net earnings

 

$

0.81

 

$

0.44

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.81

 

$

0.42

 

Earnings (loss) from discontinued operations

 

(0.01

)

0.01

 

Net earnings

 

$

0.80

 

$

0.43

 

 

Options to purchase 2,118,603 and 1,338,432 weighted average shares of common stock which were outstanding during the three months ended June 30, 2012 and 2011, respectively, were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

 

9



 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

254

 

$

155

 

 

 

 

 

 

 

Denominator (in thousands):

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

164,520

 

163,494

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other

 

1,542

 

2,699

 

 

 

 

 

 

 

Denominator for diluted earnings per share - adjusted weighted average shares outstanding

 

166,062

 

166,193

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.56

 

$

0.93

 

Earnings (loss) from discontinued operations

 

(0.02

)

0.01

 

Net earnings

 

$

1.54

 

$

0.94

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.54

 

$

0.92

 

Earnings (loss) from discontinued operations

 

(0.02

)

0.01

 

Net earnings

 

$

1.52

 

$

0.93

 

 

Options to purchase 1,908,925 and 1,147,767 weighted average shares of common stock which were outstanding during the six months ended June 30, 2012 and 2011, respectively, were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

 

The 2015 Exchangeable Notes have a dilutive effect only in those periods in which the Company’s average stock price exceeds the exchange price of $47.47 per share.  For the three and six months ended June 30, 2012 and 2011, the Company’s average stock price did not exceed the exchange price.  Therefore, the potentially issuable shares resulting from the settlement of the 2015 Exchangeable Notes were not included in the calculation of diluted earnings per share.

 

10



 

3.  Debt

 

The following table summarizes the long-term debt of the Company:

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

Secured Credit Agreement:

 

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

 

Revolving Loans

 

$

 

$

 

$

125

 

Term Loans:

 

 

 

 

 

 

 

Term Loan A (170 million AUD)

 

173

 

173

 

183

 

Term Loan B

 

600

 

600

 

600

 

Term Loan C (116 million CAD)

 

113

 

114

 

120

 

Term Loan D (€141 million)

 

177

 

182

 

205

 

Senior Notes:

 

 

 

 

 

 

 

3.00%, Exchangeable, due 2015

 

633

 

624

 

615

 

7.375%, due 2016

 

589

 

588

 

586

 

6.875%, due 2017 (€300 million)

 

377

 

388

 

435

 

6.75%, due 2020 (€500 million)

 

628

 

647

 

725

 

Senior Debentures:

 

 

 

 

 

 

 

7.80%, due 2018

 

250

 

250

 

250

 

Other

 

128

 

137

 

161

 

Total long-term debt

 

3,668

 

3,703

 

4,005

 

Less amounts due within one year

 

101

 

76

 

36

 

Long-term debt

 

$

3,567

 

$

3,627

 

$

3,969

 

 

On May 19, 2011, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At June 30, 2012, the Agreement included a $900 million revolving credit facility, a 170 million Australian dollar term loan, a $600 million term loan, a 116 million Canadian dollar term loan, and a €141 million term loan, each of which has a final maturity date of May 19, 2016.  At June 30, 2012, the Company’s subsidiary borrowers had unused credit of $807 million available under the Agreement.

 

The weighted average interest rate on borrowings outstanding under the Agreement at June 30, 2012 was 2.74%.

 

The Company has a €280 million European accounts receivable securitization program, which extends through September 2016, subject to annual renewal of backup credit lines.  Information related to the Company’s accounts receivable securitization program is as follows:

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Balance (included in short-term loans)

 

$

302

 

$

281

 

$

312

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

1.42

%

2.41

%

2.69

%

 

The carrying amounts reported for the accounts receivable securitization programs, and certain long-term debt obligations subject to frequently redetermined interest rates, approximate fair value.

 

11



 

Fair values for the Company’s significant fixed rate debt obligations are based on published market quotations, and are classified as Level 1 in the fair value hierarchy.

 

Fair values at June 30, 2012 of the Company’s significant fixed rate debt obligations are as follows:

 

 

 

 

 

Indicated

 

 

 

 

 

Principal

 

Market

 

Fair

 

 

 

Amount

 

Price

 

Value

 

 

 

 

 

 

 

 

 

Senior Notes:

 

 

 

 

 

 

 

3.00%, Exchangeable, due 2015

 

$

690

 

95.76

 

$

661

 

7.375%, due 2016

 

600

 

111.88

 

671

 

6.875%, due 2017 (€300 million)

 

377

 

103.63

 

391

 

6.75%, due 2020 (€500 million)

 

628

 

106.34

 

668

 

Senior Debentures:

 

 

 

 

 

 

 

7.80%, due 2018

 

250

 

113.50

 

284

 

 

4.  Supplemental Cash Flow Information

 

 

 

Six months ended June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Interest paid in cash

 

$

123

 

$

148

 

 

 

 

 

 

 

Income taxes paid in cash:

 

 

 

 

 

U.S.

 

$

1

 

$

1

 

Non-U.S.

 

71

 

63

 

Total income taxes paid in cash

 

$

72

 

$

64

 

 

Cash interest for 2011 includes note repurchase premiums of $16 million related to the second quarter 2011 redemption of the Company’s 6.75% senior notes due 2014.

 

Proceeds from collection of minority partner loan in 2012 represents cash received from one of the Company’s noncontrolling partners in South America as repayment of a loan.

 

12



 

5.  Share Owners’ Equity

 

The activity in share owners’ equity for the three months ended June 30, 2012 and 2011 is as follows:

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

 

 

Common
Stock

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Retained
Loss

 

Accumulated
Other
Comprehensive
Loss

 

Non-controlling
Interests

 

Total Share
Owners’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on April 1, 2012

 

$

2

 

$

2,996

 

$

(404

)

$

(258

)

$

(1,205

)

$

164

 

$

1,295

 

Issuance of common stock (0.1 million shares)

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Reissuance of common stock (0.07 million shares)

 

 

 

 

 

2

 

 

 

 

 

 

 

2

 

Stock compensation

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

133

 

 

 

4

 

137

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

(204

)

(3

)

(207

)

Pension and other postretirement benefit adjustments, net of tax

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Change in fair value of derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

 

 

 

 

 

 

 

 

 

 

(23

)

(23

)

Balance on June 30, 2012

 

$

2

 

$

3,000

 

$

(402

)

$

(125

)

$

(1,373

)

$

142

 

$

1,244

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

 

 

Common
Stock

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Non-
controlling
Interests

 

Total Share
Owners’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on April 1, 2011

 

$

2

 

$

3,041

 

$

(411

)

$

203

 

$

(806

)

$

201

 

$

2,230

 

Issuance of common stock (0.2 million shares)

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Reissuance of common stock (0.05 million shares)

 

 

 

1

 

1

 

 

 

 

 

 

 

2

 

Stock compensation

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

73

 

 

 

7

 

80

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

117

 

5

 

122

 

Pension and other postretirement benefit adjustments, net of tax

 

 

 

 

 

 

 

 

 

26

 

 

 

26

 

Acquisition of noncontrolling interest

 

 

 

(54

)

 

 

 

 

(9

)

(43

)

(106

)

Dividends paid to noncontrolling interests on subsidiary common stock

 

 

 

 

 

 

 

 

 

 

 

(13

)

(13

)

Balance on June 30, 2011

 

$

2

 

$

2,986

 

$

(410

)

$

276

 

$

(672

)

$

157

 

$

2,339

 

 

13



 

The activity in share owners’ equity for the six months ended June 30, 2012 and 2011 is as follows:

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

 

 

Common
Stock

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Retained
Loss

 

Accumulated
Other
Comprehensive
Loss

 

Non-
controlling
Interests

 

Total Share
Owners’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on January 1, 2012

 

$

2

 

$

2,991

 

$

(405

)

$

(379

)

$

(1,321

)

$

153

 

$

1,041

 

Issuance of common stock (0.2 million shares)

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Reissuance of common stock (0.1 million shares)

 

 

 

 

 

3

 

 

 

 

 

 

 

3

 

Stock compensation

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

254

 

 

 

8

 

262

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

(112

)

4

 

(108

)

Pension and other postretirement benefit adjustments, net of tax

 

 

 

 

 

 

 

 

 

57

 

 

 

57

 

Change in fair value of derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

 

 

 

 

 

 

 

 

 

 

(23

)

(23

)

Balance on June 30, 2012

 

$

2

 

$

3,000

 

$

(402

)

$

(125

)

$

(1,373

)

$

142

 

$

1,244

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

 

 

Common
Stock

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Non-
controlling
Interests

 

Total Share
Owners’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on January 1, 2011

 

$

2

 

$

3,040

 

$

(412

)

$

121

 

$

(897

)

$

211

 

$

2,065

 

Issuance of common stock (0.2 million shares)

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Reissuance of common stock (0.1 million shares)

 

 

 

1

 

2

 

 

 

 

 

 

 

3

 

Stock compensation

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

155

 

 

 

11

 

166

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

187

 

9

 

196

 

Pension and other postretirement benefit adjustments, net of tax

 

 

 

 

 

 

 

 

 

46

 

 

 

46

 

Change in fair value of derivative instruments, net of tax

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Acquisition of noncontrolling interest

 

 

 

(54

)

 

 

 

 

(9

)

(43

)

(106

)

Dividends paid to noncontrolling interests on subsidiary common stock

 

 

 

 

 

 

 

 

 

 

 

(31

)

(31

)

Balance on June 30, 2011

 

$

2

 

$

2,986

 

$

(410

)

$

276

 

$

(672

)

$

157

 

$

2,339

 

 

The acquisition of noncontrolling interests for the three and six months ended June 30, 2011 was related to the Company purchasing the noncontrolling interest in its southern Brazil operations.

 

14



 

6.  Inventories

 

Major classes of inventory are as follows:

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Finished goods

 

$

1,054

 

$

891

 

$

936

 

Raw materials

 

124

 

123

 

124

 

Operating supplies

 

45

 

47

 

54

 

 

 

 

 

 

 

 

 

 

 

$

1,223

 

$

1,061

 

$

1,114

 

 

7.  Contingencies

 

The Company is a defendant in numerous lawsuits alleging bodily injury and death as a result of exposure to asbestos dust.  From 1948 to 1958, one of the Company’s former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos.  The Company exited the pipe and block insulation business in April 1958.  The typical asbestos personal injury lawsuit alleges various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and in some cases, punitive damages in various amounts (herein referred to as “asbestos claims”).

 

As of June 30, 2012, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 4,700 plaintiffs and claimants.  Based on an analysis of the lawsuits pending as of December 31, 2011, approximately 71% of plaintiffs either do not specify the monetary damages sought, or in the case of court filings, claim an amount sufficient to invoke the jurisdictional minimum of the trial court.  Approximately 27% of plaintiffs specifically plead damages of $15 million or less, and 2% of plaintiffs specifically plead damages greater than $15 million but less than $100 million.  Fewer than 1% of plaintiffs specifically plead damages $100 million or greater but less than $122 million.

 

As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages.  The Company’s experience resolving hundreds of thousands of asbestos claims and lawsuits over an extended period demonstrates that the monetary relief that may be alleged in a complaint bears little relevance to a claim’s merits or disposition value.  Rather, the amount potentially recoverable is determined by such factors as the severity of the plaintiff’s asbestos disease, the product identification evidence against the Company and other defendants, the defenses available to the Company and other defendants, the specific jurisdiction in which the claim is made, and the plaintiff’s medical history and exposure to other disease-causing agents.

 

In addition to the pending claims set forth above, the Company has claims-handling agreements in place with many plaintiffs’ counsel throughout the country.  These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by the Company’s former business unit during its manufacturing period ending in 1958.  Some plaintiffs’ counsel have historically withheld claims under these agreements for later presentation while focusing their attention on active litigation in the tort system.  The Company believes that as of June 30, 2012 there are approximately 350 claims against other defendants which are likely to be asserted some time in the future against the Company.

 

15



 

The Company is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants.  Based upon its past experience, the Company believes that these categories of lawsuits and claims will not involve any material liability and they are not included in the above description of pending matters or in the following description of disposed matters.

 

Since receiving its first asbestos claim, the Company as of June 30, 2012, has disposed of the asbestos claims of approximately 388,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $8,200.  Certain of these dispositions have included deferred amounts payable over a number of years.  Deferred amounts payable totaled approximately $34 million at June 30, 2012 ($18 million at December 31, 2011) and are included in the foregoing average indemnity payment per claim.  The Company’s asbestos indemnity payments have varied on a per claim basis, and are expected to continue to vary considerably over time.  As discussed above, a part of the Company’s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements.  Failure of claimants to meet certain medical and product exposure criteria in the Company’s administrative claims handling agreements has generally reduced the number of marginal or suspect claims that would otherwise have been received.  In addition, certain courts and legislatures have reduced or eliminated the number of marginal or suspect claims that the Company otherwise would have received.  These developments generally have had the effect of increasing the Company’s per-claim average indemnity payment.

 

The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot reasonably be estimated. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of approximately $4.0 billion through 2011, before insurance recoveries, for its asbestos-related liability.  The Company’s ability to reasonably estimate its liability has been significantly affected by, among other factors, the volatility of asbestos-related litigation in the United States, the significant number of co-defendants that have filed for bankruptcy, the magnitude and timing of co-defendant bankruptcy trust payments, the inherent uncertainty of future disease incidence and claiming patterns, the expanding list of non-traditional defendants that have been sued in this litigation, and the use of mass litigation screenings to generate large numbers of claims by parties who allege exposure to asbestos dust but have no present physical asbestos impairment.

 

The Company has continued to monitor trends that may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. The material components of the Company’s accrued liability are based on amounts determined by the Company in connection with its annual comprehensive review and consist of the following estimates, to the extent it is probable that such liabilities have been incurred and can be reasonably estimated: (i) the liability for asbestos claims already asserted against the Company; (ii) the liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs’ counsel; (iii) the liability for asbestos claims not yet asserted against the Company, but which the Company believes will be asserted in the next several years; and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.

 

The significant assumptions underlying the material components of the Company’s accrual are:

 

a)        the extent to which settlements are limited to claimants who were exposed to the Company’s asbestos-containing insulation prior to its exit from that business in 1958;

 

16



 

b)       the extent to which claims are resolved under the Company’s administrative claims agreements or on terms comparable to those set forth in those agreements;

 

c)        the extent of decrease or increase in the incidence of serious disease cases and claiming patterns for such cases;

 

d)       the extent to which the Company is able to defend itself successfully at trial;

 

e)        the extent to which courts and legislatures eliminate, reduce or permit the diversion of financial resources for unimpaired claimants;

 

f)          the number and timing of additional co-defendant bankruptcies;

 

g)       the extent to which bankruptcy trusts direct resources to resolve claims that are also presented to the Company and the timing of the payments made by the bankruptcy trusts; and

 

h)       the extent to which co-defendants with substantial resources and assets continue to participate significantly in the resolution of future asbestos lawsuits and claims.

 

As noted above, the Company conducts a comprehensive review of its asbestos-related liabilities and costs annually in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review.  If the results of an annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated future asbestos-related costs, then the Company will record an appropriate charge to increase the accrued liability.  The Company believes that a reasonable estimation of the probable amount of the liability for claims not yet asserted against the Company is not possible beyond a period of several years.  Therefore, while the results of future annual comprehensive reviews cannot be determined, the Company expects the addition of one year to the estimation period will result in an annual charge.

 

On March 11, 2011, the Company received a verdict in an asbestos case in which conspiracy claims had been asserted against the Company. Of the total nearly $90 million awarded by the jury against the four defendants in the case, almost $10 million in compensatory damages were assessed against all four defendants, and $40 million in punitive damages were assessed against the Company.

 

The Company continues to deny the conspiracy allegations in this case and will vigorously challenge this verdict, if necessary, in the appellate courts, and, therefore, has made no change to its asbestos-related liability as of June 30, 2012.  While the Company cannot predict the ultimate outcome of this lawsuit, the Company and other conspiracy defendants have successfully challenged jury verdicts in similar cases.

 

The Company’s reported results of operations for 2011 were materially affected by the $165 million fourth quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial.  Any future additional charge would likewise materially affect the Company’s results of operations for the period in which it is recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and may continue to affect the Company’s cost of borrowing and its ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to pay its obligations for

 

17



 

asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.

 

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are non-routine and involve compensatory, punitive or treble damage claims as well as other types of relief.  The Company records a liability for such matters when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated.  Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based including additional information, negotiations, settlements, and other events.

 

8. Segment Information

 

The Company has four reportable segments based on its four geographic locations:  (1) Europe; (2) North America; (3) South America; (4) Asia Pacific.  These four segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations.  Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained corporate costs and other.  These include licensing, equipment manufacturing, global engineering, and non-glass equity investments.  Retained corporate costs and other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

 

The Company’s measure of profit for its reportable segments is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs.  The Company’s management uses Segment Operating Profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources.  Segment Operating Profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.

 

In prior periods, pension expense was recorded in each segment  related to the pension plans in place in that segment, with the exception of the U.S. pension plans which were recorded in Retained corporate costs and other.  Effective January 1, 2012, the Company changed the allocation of pension expense to its reportable segments such that pension expense recorded in each segment relates only to the service cost component of the plans in that segment.  The other components of pension expense, including interest cost, expected asset returns and amortization of actuarial losses, are recorded in Retained corporate costs and other.  This change in allocation has been applied retrospectively to all periods.  Also effective January 1, 2012, the Company elected to change the method of valuing U.S. inventories (see Note 1 for additional information).

 

18



 

There is no impact of the change in accounting method for inventory on Segment Operating Profit for the three months ended June 30, 2011. The impact of the change in pension expense allocation is as follows:

 

 

 

As

 

Change in

 

 

 

 

 

Originally

 

Pension

 

As

 

 

 

Reported

 

Allocation

 

Adjusted

 

Segment Operating Profit:

 

 

 

 

 

 

 

Europe

 

$

107

 

$

5

 

$

112

 

North America

 

56

 

(6

)

50

 

South America

 

53

 

 

 

53

 

Asia Pacific

 

9

 

 

 

9

 

Reportable segment totals

 

225

 

(1

)

224

 

Retained corporate costs and other

 

(14

)

1

 

(13

)

 

The impact of the changes in pension expense allocation and accounting method for inventory on Segment Operating Profit for the six months ended June 30, 2011 is as follows:

 

 

 

 

 

 

 

Change in

 

 

 

 

 

As

 

Change in

 

Accounting

 

 

 

 

 

Originally

 

Pension

 

Method for

 

As

 

 

 

Reported

 

Allocation

 

Inventory

 

Adjusted

 

Segment Operating Profit:

 

 

 

 

 

 

 

 

 

Europe

 

$

178

 

$

10

 

$

 

$

188

 

North America

 

115

 

(12

)

10

 

113

 

South America

 

98

 

 

 

 

 

98

 

Asia Pacific

 

33

 

 

 

 

 

33

 

Reportable segment totals

 

424

 

(2

)

10

 

432

 

Retained corporate costs and other

 

(27

)

2

 

 

 

(25

)

 

Financial information for the three-month periods ended June 30, 2012 and 2011 regarding the Company’s reportable segments is as follows:

 

 

 

2012

 

2011

 

Net sales:

 

 

 

 

 

Europe

 

$

731

 

$

887

 

North America

 

516

 

506

 

South America

 

282

 

302

 

Asia Pacific

 

230

 

246

 

 

 

 

 

 

 

Reportable segment totals

 

1,759

 

1,941

 

Other

 

7

 

18

 

Net sales

 

$

1,766

 

$

1,959

 

 

19



 

 

 

2012

 

2011

 

 

 

 

 

 

 

Segment Operating Profit:

 

 

 

 

 

Europe

 

$

107

 

$

112

 

North America

 

96

 

50

 

South America

 

47

 

53

 

Asia Pacific

 

16

 

9

 

Reportable segment totals

 

266

 

224

 

 

 

 

 

 

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

Retained corporate costs and other

 

(27

)

(13

)

Restructuring

 

 

 

(4

)

Interest income

 

2

 

3

 

Interest expense

 

(62

)

(100